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When can a decision by the JSE be overturned?

In the decision of Absa Bank Ltd v Ukwanda Leisure Holdings (Pty) Ltd 2014 (1) SA 550 (GSJ), two of the issues that the South Gauteng High Court (as it then was) was tasked with deciding were:

whether the JSE Ltd (JSE) exercised administrative action in terms of the Promotion of Administrative Justice Act, 2000 (PAJA), when it expressed its view that a particular trading member had not breached the exchange’s Derivative Rules; and

if it did constitute administrative action, whether Ukwanda Leisure Holdings (Pty) Ltd (Ukwanda) was permitted to set aside the decision indirectly, without reviewing the JSE’s decision.

In this case:

ABSA Bank Ltd (ABSA) instituted proceedings against Ukwanda for payment of an amount of approximately R732 million.

In doing so, ABSA sought to recover losses that it incurred as the clearing bank of Cortex, a trading member of the JSE, when Ukwanda (Cortex’s client) defaulted on payment of the variation margin in respect of certain single-stock futures.

Ukwanda’s defence was that the margin call was unlawful, as the failure by Cortex via ABSA to make certain prior payments constituted a breach of the Derivative Rules.

Ukwanda had lodged a complaint with the JSE as to the alleged breach of the Derivative Rules by Cortex but the JSE’s view was that Cortex was not in breach.

The High Court referred to the elements set out in the definition of “administrative action” in PAJA. In regard to whether or not a “decision” had been taken, the Court highlighted three requirements, namely:

it must be a decision with finality;

it must be a decision of an administrative nature; and

it must be made under an empowering provision.

The High Court emphasized that a “decision” is taken when some form of considered process is followed. This involves:

an application or request to initiate the process;

a compilation and evaluation of relevant information relating to such request;

a conclusion being reached; and

an exercise of a statutory or public power based on the conclusion reached. The existence of a process was also found to be pertinent in regard to whether the decision was “administrative in nature”.

The High Court continued that the JSE exercises a public power because it is under a statutory duty to act in the public interest, including publishing and implementing rules to ensure the integrity of the market. Essentially, the JSE regulates the players in the market. The Court found that by evaluating Ukwanda’s complaint, the JSE was classically exercising a public power/performing a public function.

The JSE, the court continued, acted in terms of the Derivative Rules published under the (now repealed) Securities Services Act. These rules constituted the empowering provision under which the JSE was authorised to act, noting that the JSE’s obligations are both contractual and administrative in nature.

The conclusion of the High Court was therefore that the JSE’s decision that Cortex had not defaulted in terms of the Derivative Rules constituted administrative action that was reviewable in terms of PAJA.

The High Court then went on to decide whether Ukwanda could challenge the decision of the JSE:

without applying to review and set aside the decision;

pursuing its statutory rights in terms of the Securities Services Act; or

persisting with declaratory relief against Cortex and Absa.

Instead, Ukwanda sought to challenge the JSE’s decision in an indirect manner in a dispute that was, in fact, between two private parties and in which the JSE was not even joined.

The High Court stated that as administrative action, the JSE’s decision stood until set aside by a Court on review. Outside a review application, there are very limited instances where a party may indirectly or collaterally challenge administrative action. The Court declined to extend a collateral challenge beyond instances where a public authority seeks to coerce a subject into compliance with an unlawful administrative act.

The High Court thus concluded that “the JSE’s decision, which constitutes administrative action under the Act, cannot be indirectly challenged by Ukwanda in these proceedings.” It granted judgment in favour of ABSA and Ukwanda was ordered to pay ABSA the sum of R732 million.

Given that all decisions taken or powers exercised by a regulator do not necessarily constitute administrative action, this case provides a useful precedent in regard to what type of decisions by the JSE constitute “administrative action”. It also provides confirmation that if administrative action is not set aside in an application instituted against the JSE itself, one generally cannot challenge the JSE’s decision indirectly, in a dispute solely between private parties.

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